U.S. equity REITs' cost of debt capital remains attractive by historic standards; however, unsecured bond spreads have remained in the 130-140 basis point range since the beginning of 2015, above the 100-110 basis point range last seen in August 2014, according to Fitch Ratings' latest REIT Liquidity Update.
The median liquidity coverage ratio for select U.S. equity REITs is 1.7x for the April 1, 2015-Dec. 31, 2016 period, down slightly from 1.9x for the comparable timeframe noted in Fitch's first-quarter 2014 liquidity report. There is a relatively even distribution of liquidity coverage ratios across the healthcare, industrial, multifamily, office and retail property sectors.
Availability from revolving credit facilities remain the largest component of REITs' sources of liquidity. Cash and cash equivalents represented 11.2% of total liquidity sources as of March 31, 2015, compared to 10.4%, 13.2% and 13.6% as of Dec. 31, 2014, Dec. 31, 2013 and Dec. 31, 2012, respectively.
Preferred stock continues to be a less attractive source of capital to REITs given high dividend yields and select issuers' preference for the 30-year bond market as opposed to the preferred stock market when considering long-term funding options. Despite the thin preferred market, REITs have issued $10.1 billion of common equity and $14.2 billion of nsecured bond markets in 2015, both on pace to eclipse full-year 2014 levels.
Effective yields for U.S. equity REIT bonds have been volatile due to recent movements in Treasury rates. Although spreads have been basically flat in 2015, REIT effective yields have been around 3.0% in recent weeks following the increase in Treasury rates in late April and early May 2015. The low point of REIT effective yields in 1Q2015 occurred in late January 2015, at around 2.6%.
The full report, '1Q15 U.S. Equity REIT Liquidity Update: Solid Against Plentiful Capital Backdrop', is available at 'www.fitchratings.com'.
